Amazon split its shares. Shopify, Google and Tesla are next.

Amazon split its shares. Google and Tesla are next.

In the last four months, Alphabet (GOOG), the parent company of Google and YouTube, Amazon (AMZN), and Tesla (TSLA) have all announced their intentions to split their shares. Amazon's 20-for-1 split took place at the beginning of this week, while Alphabet's 20-for-1 split will take effect on July 15. Details are unknown about Tesla's split and will be voted on at the company's annual shareholder meeting.

Whether you cut a pie into 10 or 100 pieces, it should not affect how much the pie is worth. But in the stock market, a stock split - which is essentially cutting shares into smaller pieces - can have some significant consequences.
According to Bank of America, S&P 500 companies that have announced stock splits since 1980 had an average return of 25,4% over the next 12 months, compared with the S&P 500's average return of 9% over the same period. In fact, the bank says that after a split is announced, these stocks also outperformed the benchmark index over three- and six-month periods.

“Once the split is executed, investors who wanted to gain or increase exposure may start rushing for the chance to buy.” 

On February 2, Google parent company Alphabet announced a 20-for-1 stock split together with its latest earnings report. Shares rose 7,5% in the next trading session.

In March, Amazon announced a 20-for-1 stock split and a 10 billion dollar share buyback plan on March 9. Shares of the e-commerce giant rose 5,4% the next day. Now the announcement has been implemented, so each Amazon share becomes 20 shares. The stock, which fell 2,5% on Friday to 2.447 USD, opened Monday at a price of about 122 USD. The number of Amazon shares increased from 509 million to 10,2 billion.

It is the fourth time Amazon has declared a stock split since it went public in 1997, but the first in the last two decades. The other three splits all occurred within 15 months, during the dotcom crisis: 2-for-1 in June 1998, 3-for-1 in January 1999, and 2-for-1 in September 1999.

By splitting a share into smaller pieces, each share will have a lower price, which means it makes them more accessible and therefore could attract more interest from retail investors. However, it does not change the company's fundamentals.

That said, amid today's geopolitical crisis, stock splits by quality companies could be one of the things that may encourage investors in 2022.

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